At least 87 people were feared dead in Norway last night after a gunman mowed down students at a summer camp hours after a bomb had devastated the centre of Oslo.

Dozens of youths attending a political gathering were reported to have been shot dead when a terrorist disguised as a policeman opened fire on a holiday island on a lake near the capital.

Police say at least 80 people were killed in the youth camp after initially reporting the death toll at 10.

Seven people had earlier been killed in central Oslo when a car bomb went off outside the country’s main government building. Members of the country’s ruling Labour Party were the targets in both cases. Police had confirmed a total of 17 deaths last night.

British security forces were immediately placed on alert amid fears that Norway’s worst terrorist outrage might be the first in a series of attacks on the West. The carnage followed repeated warnings that al-Qaeda was planning a Mumbai-style attack on countries involved in the war in Afghanistan, where Norway has about 500 troops.

At least one Islamic terror group quickly claimed the attacks were “revenge” for Norway’s engagement in Afghanistan, but last night Norwegian police said the attack did not appear to be the work of Islamist terrorists.

The man arrested in connection with the Utoya island shooting was named last night by the the justice ministry as Anders Behring Breivik, a 32-year-old Norwegian national. Investigators believe he was also involved in the bombing, but have not ruled out the possibility that he had accomplices.

Officials said 10 people had been confirmed dead in the shootings and a further seven in the bombing, but said the total was likely to rise.

Witnesses reported teenagers throwing themselves into the notoriously dangerous waters around the island in a desperate attempt to flee the bullets. Rescue workers claimed to have seen between 20 and 30 bodies floating in the water.

Andre Skeie, 26, who took his boat to the island to help evacuate people, said: “I’ve seen it with my own eyes, at least 20 dead people lying in the water.” Relations and friends of those caught up in the attack were warned not to phone in case the ringing gave away the location of those hiding from the gunman.

“We were in the grass. We had to be quiet as we hid,” said Lisa Irene Johansen, one of the crowd. “He was wearing a police uniform, with a shooting vest, and there was complete panic as he shot.”

The powerful explosion targeting the office of Jens Stoltenberg, the country’s prime minister, at 3.15pm, caused widespread destruction to the oil ministry and several media outlets, including the state broadcaster, NRK, and Norwegian tabloid newspaper VG. A man in a police uniform was reportedly seen leaving the bomb site shortly before the explosion.

Most of the windows in the 20-floor building where Mr Stoltenberg worked were shattered. He was working at home yesterday and spoke briefly by phone from a secure location. Struggling to cope with the enormity of the attack, he said the army would be mobilised to assist the police. “It’s important that we don’t let ourselves be scared. Because the purpose of that kind of violence is to create fear,” he added.

Bodies lay strewn among the devastation in Oslo. Eyewitnesses described torsos hanging out of broken windows and corpses lying untouched in the wreckage-strewn streets. “It looks like a war zone. It doesn’t look as if one is in Norway. All the windows are ruined. The whole entrance area is crushed,” said Anne Marte Blindheim, a journalist at the scene. “There is blood and case documents all around and crushed cars. A car is lying on the side, completely burnt out.”

David Cameron released a statement expressing solidarity with the Norwegian people. “I was outraged to hear about the explosion in Oslo and attack in Utoya today that have killed and injured innocent people,” he said.

“My thoughts are with the wounded and those who have lost friends and family, and I know everyone in Britain will feel the same. These attacks are a stark reminder of the threat we all face from terrorism. I have called Prime Minister Stoltenberg this evening to express my sincere condolences and to let him know that our thoughts are with the Norwegian people at this tragic time.

“I have offered Britain’s help, including through our close intelligence co-operation. We will work with Norway to hunt the murderers who did this and prevent any more innocent deaths. We can overcome this evil, and we will.”

President Barack Obama, who visited Oslo in 2009 to receive the Nobel Peace Prize, said the American government had offered Norway any help necessary. “We have to work co-operatively together on intelligence and in terms of prevention of these kinds of horrible attacks,” he said. “Our hearts go out to them and we will provide any support we can to them.”

The UK terrorist alert level remained at “substantial” last night, meaning an attack was a strong possibility.

Analysts at MI5 were working late into the night to track down any possible links between extremists in Britain and Norway. Norway’s Police Security Service (PST), the equivalent of MI5, rounded up an alleged terrorist cell with links to Britain almost exactly a year ago.

Mikael Davud had allegedly been in contact with Rashid Rauf, a British al-Qaeda commander who was also running simultaneous plots in Manchester, aimed at Easter shoppers, and in New York, aimed at the city’s metro. The PST also found passport photographs of Ibrahim Adam, one of Britain’s most wanted terrorist suspects, at Davud’s sixth-floor flat, causing an international alert over concerns that he was trying to return to Britain to launch an attack.